New business location: how local characteristics influence individual location decision?

The aim of this paper is to identify the impact of local characteristics, such as the relative concentration of economic activities, on new business location decisions based on their sectors of economic activity. Spatial establishment-level, micro-data, pooled over time (2008–2014) was used for a typical Canadian nonmetropolitan area—the Lower St. Lawrence region—in the province of Quebec. The study was conducted on a radius of 1250 m to describe the local economic environment. Results of our employed multinomial logit model reveal that local characteristics influence the location decision of new individual establishments for most of the economic sectors. An econometric model is developed to simulate the probability that a new establishment (in a given economic sector) will be located at a given geographic location based on this location’s characteristics. Results confirm that the location decisions for new primary sector businesses are related to the presence of benefits arising from the existence of natural resources as well as those benefits associated with having large spaces (such as in the case of rural cities). New manufacturing sector businesses are mainly looking for a co-location (specialisation) pattern, with a slight preference to locate in small-sized cities. Finally, the location decisions of service sectors firms are strongly dependent on intermediate demand and on the distance to major markets.